Stocks Could Regain Some Strength at the Open

The market's keeping a close eye on the September S&P 500 futures contracts as they hover right above a significant support level.
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The stock market looks set for a pop this morning, and investors better hope like hell that it holds.

Yesterday's drop did major damage to the chart of the September

S&P 500

futures contract. Closing at 1387.5, the futures are sitting right on top of the level they spent all spring trying to get through. It's a major support level, an area where -- theoretically at least -- lots of investors are comfortable buying stock.

In these low-volume days of summer, when the futures market and program trades take on an outsize importance, the charts tend to matter a bit more than usual. Bearing that in mind, it will be important for the market to put on some gains today, laying in some padding, just in case

Fed

Chairman

Alan Greenspan

says anything to spook investors when he gives his

Humphrey-Hawkins

testimony tomorrow. Conversely, if he takes a more even-handed approach, there may be a rally brewing.

Odds favor even-handedness. Fed watchers have recently been saying that, barring unexpectedly strong economic data, the

Federal Open Market Committee

will probably not raise rates at its late-August meeting. An article in

The Washington Post

this morning by John Berry, one of a handful of journalists with close ties to the Fed, reinforces that sense. Berry wrote of a high degree of dissension at the most recent FOMC meeting, with members bickering over whether the Fed should adopt a neutral bias and even over what a bias means. There was also a lot of talk about what is the sustainable growth rate of the economy, given recent gains in productivity, with Greenspan apparently suggesting that it may be higher than his publicly stated 3%. (Currently, the economy is expanding at about a 4% rate.)

"The consensus seems to be that Greenspan is going to give a friendly testimony, and things will be all right," says Jim Volk, co-director of institutional trading at

D.A. Davidson

. "I think the market has a little support -- courage came back this morning into the futures."

At 9 a.m. EDT, the

S&P 500

futures were up 1.3 to 1389. That puts them about 3 points ahead of fair value, indicating a good open. The 30-year Treasury was off 10/32 to 90 26/32, putting the yield at 5.91%.

Investors, fretting about the loss on Wall Street and the strength of the yen, sold down the Tokyo stock market. The

Nikkei

fell 265.06, or 1.5%, to 18,257.52.

The trouble in New York also hit Hong Kong stocks. The

Hang Seng

dropped 180.74, or 1.3%, to 13,419.66. Sino-Taiwanese tensions also damped enthusiasm; though Taiwan has lately moved to soothe Chinese nerves, for many investors the all-clear signal has yet to be sounded.

Europe's major bourses were lower. In Frankfurt, the

Xetra Dax

was down 66.06, or 1.2%, to 5425.23. In Paris, the

CAC

was off 60.48, or 1.3%, to 4487.83. And London's

FTSE

was down 56.4 to 6335.6.

Wednesday's Wake-Up Watchlist

By

Brian Louis

Staff Reporter

Johnson & Johnson

(JNJ) - Get Report

is acquiring

Centocor

(CNTO)

for $4.9 billion in stock, confirming a report in today's edition of

The Wall Street Journal

. The deal is expected to be completed in the fourth quarter. Centocor will retain its name and management and be a free-standing Johnson & Johnson company.

Chase

(CMB)

reported second-quarter operating earnings of $1.55 a share, beating the

First Call

20-analyst estimate of $1.37 and up from the year-ago $1.21.

Mergers, acquisitions and joint ventures

Cincinnati Bell

(CSN)

is buying

IXC Communications

(IIXC)

for $3.2 billion, including assumed debt.

Britain's

FirstGroup

is acquiring

Ryder Public Transportation Services

, a subsidiary of

Ryder

(R) - Get Report

, for $940 million in cash.

Earnings/revenue reports and previews

(Earnings estimates are from First Call.)

Allstate

(ALL) - Get Report

reported second-quarter operating earnings of 75 cents a share, shy of the 18-analyst estimate of 79 cents and up from the year-ago 74 cents.

AMR

(AMR)

, parent of

American Airlines

, reported second-quarter earnings of $1.70 a share, beating the 12-analyst estimate and up from the year-ago $2.30.

Bristol-Myers Squibb

(BMY) - Get Report

reported second-quarter earnings of 47 cents a share, in line with the 23-analyst estimate and up from the year-ago 41 cents.

Eastman Kodak

(EK)

posted second-quarter earnings of $1.52 a share, topping the 11-analyst estimate by a penny.

EMC

(EMC)

reported second-quarter earnings of 27 cents, beating the 18-analyst estimate of 24 cents and up from the year-ago 18 cents.

Exxon

(XON) - Get Report

posted second-quarter earnings of 49 cents a share, in line with the 20-analyst estimate but down from the year-ago 65 cents.

Georgia-Pacific

(GP)

ported second-quarter earnings of $1.20 a share, beating the 13-analyst estimate of $1.06 and up from the year-ago 16 cents.

Knight/Trimark Group

(NITE)

posted second-quarter earnings of 43 cents a share, beating the nine-analyst estimate of 35 cents and up from the year-ago 14 cents.

Eli Lilly

(LLY) - Get Report

posted second-quarter earnings of 52 cents a share, beating the 24-analyst estimate by a penny.

Schering-Plough

(SGP)

posted second-quarter earnings of 37 cents a share, beating the 23-analyst estimate of 36 cents and up from the year-ago 31 cents.

UAL

(UAL) - Get Report

, parent of

United Airlines

, reported second-quarter earnings of $2.86 a share, before the extraordinary item and excluding a gain, beating the 11-analyst estimate of $2.66, but down from the year-ago $3.24. The company said it expects to post third-quarter earnings to be in a range between $3.60 and $4.00. The nine-analyst estimate calls for the company to earn $3.79 a share in the third quarter.

Miscellany

Nokia

(NOK) - Get Report

will supply more than $100 million worth of digital subscriber line equipment to

Covad

(COVD)

, an Internet access provider.

Analyst actions

Morgan Stanley Dean Witter

upgraded

Cypress Semiconductor

(CY) - Get Report

to outperform from neutral.

Merrill Lynch

upgraded

Texas Instruments

(TXN) - Get Report

to near-term buy from near-term accumulate.

PaineWebber

initiated coverage of

Wyndham International

(WYN)

with a neutral rating.